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Its probably regulation that is making the market not free enough. For power they are often granted explicit monopolies. The straightforward solution to "the gu

Its probably regulation that is making the market not free enough. For power they are often granted explicit monopolies. The straightforward solution to "the guys we gave a monopoly to are charging too much" is not letting them have a monopoly anymore.

roughly 3y ago
Two notes on this: The first is that barrier to entry for power companies is that they're enormously expensive to set up - they're huge up-front capital costs with extremely low per-unit costs. This is, as several others have pointed out, the textbook scenario for natural monopolies, in which left to its own course, one company will capture the entire market. The second is that typically the reason a power company is then granted an explicit monopoly is because there's a social need to deliver power to places that are more expensive to provide to than the civic center, and usually the monopoly is provided with stipulations that the company must deliver power to these areas. This is for two reasons - the first is otherwise nobody, no matter how much competition is in the market, is going to deliver power to those areas, because it's fundamentally uneconomical, and the second is that the company that does try to provide power to those areas will be undercut by the company that isn't. A chartered monopoly in this case is to work around the fact that the market _does not work_ for provisioning these goods - left to its own devices, the market would not provide power to many distant rural areas. The basic conflict here is between a social good with diffuse benefits - electrification in rural areas is generally considered a net positive for productivity, health, society, etc., and pride of place, but it's deeply uneconomical on a unit basis, and so the market solution does not deliver here. Sometimes the math says the market's the best choice, sometimes it does not. For large-scale provision of high capital cost goods across a geographically distributed area of variable population density, the math says the market doesn't work out.
- willcipriano 3y ago
  > the math says the market doesn't work out. I get it. But if that's true we should be able to make it easier for firms to build competitors and worst case, nothing happens right? The fact is power companies enjoy things like access to public land or rights to use poles, often granted to only them explicitly. If they are truly a natural monopoly they won't need the effective legal monopoly protection.
  - roughly 3y ago
    Because the equilibrium point for the natural monopoly is worse than that for the chartered monopoly, both for the company and the region it serves. For the company, the natural monopoly state still has them having to negotiate rights of way, etc, in a way that raises overall cost and complexity of provisioning the service. For the region, the natural monopoly state leaves outlying and areas less economical to serve less well served and leads to higher rates, because, monopoly. So, a chartered monopoly allows the company to operate at lower cost and less uncertainty and allows the region to enforce both quality and quantity of service as well as have some control over rates.
    - willcipriano 3y ago
      How would a competitor even get established if economies of scale provide such a large advantage? The only way that would work is it the current power company has very wide margins.
      - roughly 3y ago
        I encourage you to go back and re-read my previous posts, paying attention in particular to what is asked of the company granted the monopoly in exchange for the charter. To refresh, the companies are obligated to take on less and potentially uneconomical customers, and to provide them services at rates below what the market would ordinarily demand. This is done as a social good. This puts the chartered monopoly at a potential disadvantage to competitors without a similar obligation, who are not required to bear the cost of provisioning service to those customers or can pick their markets more carefully. Once again, the natural monopoly state is less service to fewer customers at a higher price.
        willcipriano 3y ago
        So update that regulation to a version that assumes competition. Force power companies to deliver power to a percentage of the unprofitable customers roughly proportionate to their total market share of the profitable customers. Could also force the encumbant to rent unprofitable customers at their cost to upstarts to make it easier for them, sort of like carbon credits.
kristopolous 3y ago
All markets have rules. Rules are another word for regulation. You're just proposing a set of rules that's more favorable for a particular outcome. There's strong evidence when it was tried, just in the last 25 years in real estate, electricity, water, cryptocurrency, precious metals, supplements, and startups that those sets of rules lead to fraud and abuse. That's why the "regulations" exist - they're laws to prevent crimes that went in because lots of that crime happened. I personally made good money in those bubbles but most people got wrecked. Encouraging more of them doesn't lead to a healthy stable society. There's wild examples before baseline regulations in the late 1800s of people selling the same lot of property dozens of times (when you can only sell it once) and people finding out the seller never even owned the property to begin with. These frauds were super common before government regulation and people are still doing it in international markets. For instance, the airport that never existed https://en.m.wikipedia.org/wiki/Emmanuel_Nwude https://en.m.wikipedia.org/wiki/Emmanuel_Nwude
- willcipriano 3y ago
  Good regulations are good sure. Many regulations are written by the encumbant in a market. Often they are designed to be difficult for upstarts to compete with them. Major corporations are often publicly in favor of regulation, they lobby for it.[0] I don't propose you allow people to burn tires in their backyards to generate electricity for the community. What I propose that when you see a commodity and the producers of that commodity have relatively high margins that is a signal that something is preventing someone else from coming in and offering the same commodity at a slightly lower price. At a minimum we need to lower those often specifically designed by the encumbant barriers to entry. This should happen in every market, what people are calling greedflation can only exist due to a mixture of these sort of barriers, money printing and non-existant anti trust enforcement. [0]https://en.m.wikipedia.org/wiki/Regulatory_capture https://en.m.wikipedia.org/wiki/Regulatory_capture
  - kristopolous 3y ago
    The thing preventing others from coming in is the power asymmetry that's an inherent property of capitalism associated with the wealth of the company and their command of the market. Loosening "regulations" in a way that allows them to consolidate more power doesn't actually get to the goals. They're propaganda moves to allow the dominant companies to gobble up the market or offload their costs. These were done, for example, in media and music to ostensibly "increase freedom" but in practice it just consolidated things into fewer hands than ever before. You don't win the market through naive stupid competition like some price cutting moron. They don't actually work that way. The problem are in the incentives and fundamental structure, not in the existence of laws or governance. Libertarian economics is what got us here through 45 years of Chicago and Virginia school policies, not some solution we haven't tried that'll get us out. It is the problem.
xracy 3y ago
Weird, because in most markets it's the exact opposite. Also, you can see how the free market handles utilities in Texas. That's worked swimmingly well the last couple of years. But in reality, public utilities should be owned by the gov't. Otherwise... Enron. Or the aforementioned Texas "free market" debacle.

roughly 3y ago

Two notes on this: The first is that barrier to entry for power companies is that they're enormously expensive to set up - they're huge up-front capital costs with extremely low per-unit costs. This is, as several others have pointed out, the textbook scenario for natural monopolies, in which left to its own course, one company will capture the entire market. The second is that typically the reason a power company is then granted an explicit monopoly is because there's a social need to deliver power to places that are more expensive to provide to than the civic center, and usually the monopoly is provided with stipulations that the company must deliver power to these areas. This is for two reasons - the first is otherwise nobody, no matter how much competition is in the market, is going to deliver power to those areas, because it's fundamentally uneconomical, and the second is that the company that does try to provide power to those areas will be undercut by the company that isn't. A chartered monopoly in this case is to work around the fact that the market _does not work_ for provisioning these goods - left to its own devices, the market would not provide power to many distant rural areas. The basic conflict here is between a social good with diffuse benefits - electrification in rural areas is generally considered a net positive for productivity, health, society, etc., and pride of place, but it's deeply uneconomical on a unit basis, and so the market solution does not deliver here. Sometimes the math says the market's the best choice, sometimes it does not. For large-scale provision of high capital cost goods across a geographically distributed area of variable population density, the math says the market doesn't work out.

willcipriano 3y ago
> the math says the market doesn't work out. I get it. But if that's true we should be able to make it easier for firms to build competitors and worst case, nothing happens right? The fact is power companies enjoy things like access to public land or rights to use poles, often granted to only them explicitly. If they are truly a natural monopoly they won't need the effective legal monopoly protection.
- roughly 3y ago
  Because the equilibrium point for the natural monopoly is worse than that for the chartered monopoly, both for the company and the region it serves. For the company, the natural monopoly state still has them having to negotiate rights of way, etc, in a way that raises overall cost and complexity of provisioning the service. For the region, the natural monopoly state leaves outlying and areas less economical to serve less well served and leads to higher rates, because, monopoly. So, a chartered monopoly allows the company to operate at lower cost and less uncertainty and allows the region to enforce both quality and quantity of service as well as have some control over rates.
  - willcipriano 3y ago
    How would a competitor even get established if economies of scale provide such a large advantage? The only way that would work is it the current power company has very wide margins.
    - roughly 3y ago
      I encourage you to go back and re-read my previous posts, paying attention in particular to what is asked of the company granted the monopoly in exchange for the charter. To refresh, the companies are obligated to take on less and potentially uneconomical customers, and to provide them services at rates below what the market would ordinarily demand. This is done as a social good. This puts the chartered monopoly at a potential disadvantage to competitors without a similar obligation, who are not required to bear the cost of provisioning service to those customers or can pick their markets more carefully. Once again, the natural monopoly state is less service to fewer customers at a higher price.
      - willcipriano 3y ago
        So update that regulation to a version that assumes competition. Force power companies to deliver power to a percentage of the unprofitable customers roughly proportionate to their total market share of the profitable customers. Could also force the encumbant to rent unprofitable customers at their cost to upstarts to make it easier for them, sort of like carbon credits.

kristopolous 3y ago

All markets have rules. Rules are another word for regulation. You're just proposing a set of rules that's more favorable for a particular outcome. There's strong evidence when it was tried, just in the last 25 years in real estate, electricity, water, cryptocurrency, precious metals, supplements, and startups that those sets of rules lead to fraud and abuse. That's why the "regulations" exist - they're laws to prevent crimes that went in because lots of that crime happened. I personally made good money in those bubbles but most people got wrecked. Encouraging more of them doesn't lead to a healthy stable society. There's wild examples before baseline regulations in the late 1800s of people selling the same lot of property dozens of times (when you can only sell it once) and people finding out the seller never even owned the property to begin with. These frauds were super common before government regulation and people are still doing it in international markets. For instance, the airport that never existed https://en.m.wikipedia.org/wiki/Emmanuel_Nwude https://en.m.wikipedia.org/wiki/Emmanuel_Nwude

willcipriano 3y ago
Good regulations are good sure. Many regulations are written by the encumbant in a market. Often they are designed to be difficult for upstarts to compete with them. Major corporations are often publicly in favor of regulation, they lobby for it.[0] I don't propose you allow people to burn tires in their backyards to generate electricity for the community. What I propose that when you see a commodity and the producers of that commodity have relatively high margins that is a signal that something is preventing someone else from coming in and offering the same commodity at a slightly lower price. At a minimum we need to lower those often specifically designed by the encumbant barriers to entry. This should happen in every market, what people are calling greedflation can only exist due to a mixture of these sort of barriers, money printing and non-existant anti trust enforcement. [0]https://en.m.wikipedia.org/wiki/Regulatory_capture https://en.m.wikipedia.org/wiki/Regulatory_capture
- kristopolous 3y ago
  The thing preventing others from coming in is the power asymmetry that's an inherent property of capitalism associated with the wealth of the company and their command of the market. Loosening "regulations" in a way that allows them to consolidate more power doesn't actually get to the goals. They're propaganda moves to allow the dominant companies to gobble up the market or offload their costs. These were done, for example, in media and music to ostensibly "increase freedom" but in practice it just consolidated things into fewer hands than ever before. You don't win the market through naive stupid competition like some price cutting moron. They don't actually work that way. The problem are in the incentives and fundamental structure, not in the existence of laws or governance. Libertarian economics is what got us here through 45 years of Chicago and Virginia school policies, not some solution we haven't tried that'll get us out. It is the problem.

xracy 3y ago

Weird, because in most markets it's the exact opposite. Also, you can see how the free market handles utilities in Texas. That's worked swimmingly well the last couple of years. But in reality, public utilities should be owned by the gov't. Otherwise... Enron. Or the aforementioned Texas "free market" debacle.